| The difference between stocks and bonds isn't | | | | business goes bankrupt bond-holders are |
| clear to those just starting in the wonderful world | | | | preferential creditors and will get compensated |
| of investing. While stocks give investors part | | | | first. |
| ownership of a company, bonds are loans made | | | | 2. Trading Bonds |
| by investors to corporations or governments. | | | | Traditionally, bonds were the exclusive trading |
| Rather than benefiting from company profits the | | | | realm of huge corporations and banks. Not any |
| way that stock holders do, bond holders receive | | | | more – even a savvy investor can begin |
| a fixed rate of return, a fixed interest rate. Bonds | | | | trading bonds with as little as $5,000. Bonds |
| only last for so long and have a termination date | | | | bought and sold after the initial issues are quoted |
| called the date of maturity. Also, they can take | | | | in increments of $100. A bond that is listed at 96 |
| decades to mature, whereas stock exchanges | | | | is selling for $96 per $100 face value. |
| happen with lightning speed every day. If you are | | | | 3. Stocks Or Bonds? |
| just looking to make a quick buck with high risk, | | | | Given what you have read so far, you might |
| go for stocks. In comparison, if you need stability, | | | | think that stocks are better for the short term |
| say, for a retirement, you might choose bonds. | | | | and bonds for the long term, but the statistics do |
| 1. Risks Versus Rewards | | | | not lie. Bonds offer greater security and return on |
| As hinted at earlier, stocks have a higher rate of | | | | your investment than stocks, overall. The situation |
| risk whereas bonds are more secure. Of course | | | | changes, however, when time spans of longer |
| to say bonds are safer than stocks doesn't | | | | than 10 years are considered. The stock market |
| automatically mean that you will always make | | | | has consistently outperformed bond investments |
| money on bonds. A bond is an investment | | | | by a large factor. This is because companies |
| – and as such it may not be paid back. US | | | | continue to increase in value and any short term |
| government bonds are considered to be the | | | | fluctuations in the stock market become |
| safest type of bonds. Blue chip corporations | | | | smoothed out. Overall, you should never put all |
| (those with established performance records that | | | | your eggs in one basket – consider a bond |
| span over many decades) are also very safe | | | | as part of your portfolio to help cushion against |
| bond investments. Smaller corporations have a | | | | market fluctuations. A mixture of investments is |
| greater risk of defaulting on their bonds, but if the | | | | always the best choice. |